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### ### ## ### ## # ### # Interpersonal Computing and
### ### ## ### ## ### Technology:
### ### ## ### ### An Electronic Journal for
### ######## ### ### the 21st Century
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### ### ### ## ### ISSN: 1064-4326
### ### ### ## ### April, 1997
####### ### ######## ### Volume 5, Number 1-2, pp. 37-62
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Published by the Association for Educational Communications and Technology
Additional support provided by Georgetown University
University of Maryland, Baltimore County and Northern Arizona University
This article is archived as LEWIS IPCTV5N2 on
LISTSERV@LISTSERV.GEORGETOWN.EDU
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UNIVERSAL SERVICE FOR SCHOOLS: INSIGHTS INTO THE JOINT BOARD'S
RECOMMENDED DECISION
Patricia Figliola Lewis
University of Florida
INTRODUCTION
President Clinton signed the Telecommunications Act [1] ("the Act") in
February 1996, fundamentally changing the telecommunications industry.
One of the Act's most important provisions codified and expanded the ad
hoc national universal service policy developed and administered by the
Federal Communications Commission (FCC).[2] This policy has been used
to provide basic telephone service at affordable rates to the greatest
number of American homes, regardless of location or income. The FCC
accomplished the goals of this policy by providing subsidies to local
telephone companies providing service to high-cost areas [3] and low-
income customers.[4]
In the years leading up to the passage of the Act, however, public
interest and educational groups advocated expanding the definition of
"universal service" to include more advanced services and to offer
subsidies to a greater range of recipients, such as schools. The 1996
Act did just that. It required not only that schools be included in the
general universal service mechanism, but that the FCC consider making
other services available to schools as well.
Following the signing of the Act, the FCC initiated a rulemaking
proceeding and established a Federal-State Joint Board on Universal
Service ("Joint Board") to consider comments from the public.[5] That
Joint Board released its Recommended Decision on this matter in November
1996.[6] Following a comment period on the recommendations,[7] the FCC
will release its final rules in May 1997.
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This paper begins by providing a summary of the Telecommunications Act
of 1996 as it relates to universal service for schools. It then
outlines the FCC's rulemaking proceeding on that issue, summarizing and
explaining key points of the comments in the proceeding and the Joint
Board's Recommended Decision. The paper next identifies the points of
agreement and disagreement within the Recommended Decision and concludes
with an analysis of those points.
THE 1996 TELECOMMUNICATIONS ACT AND UNIVERSAL SERVICE
The Telecommunications Act of 1996 wrote into law for the first time a
requirement for universal service. The Act continues to support the
provision of "core" services to the traditional universal service
recipients - service providers in high-cost areas and low-income
consumers - under the general definition of universal service. Core
services are those services determined by the FCC to be:
(1) Essential to education, public health, or public safety
(2) Subscribed to by a "substantial majority of residential customers"
(3) Deployed in the public telecommunications network by
telecommunications carriers
(4) Consistent with the "public interest, convenience, and
necessity."[8]
The Act, however, also contained provisions that expand universal
service support to include a new group: "public institutional
users,"[9] including schools, libraries, and rural health care
providers.[10] These provisions require that, in addition to the core
services, the FCC consider designating additional services to be made
available at a discount to schools.[11]
The Act also directed the FCC to appoint a Joint Board to review current
universal service policies and adapt those policies to the requirements
of the Act. The Joint Board was to be composed of three FCC
Commissioners, four state public service commission representatives
nominated by the National Association of Regulatory Utility
Commissioners, and one utility consumer advocate nominated by the
National Association of State Utility Consumer Advocates.
Summary of Universal Service Provisions Affecting Access for Schools
Section 25412 is the primary universal service provision of the amended
Act. Section 254(h), Telecommunications Services for Certain Providers,
contains two of the four paragraphs that apply specifically to providing
services to schools:
Universal Service Principles - ß 254(b)(6). The FCC must consider the
issue of universal service for schools when it develops its universal
service policies.[13]
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Special Services - ß 254(c)(3). In addition to the core services (i.e.,
in the general definition of universal service), the FCC may designate
additional services for schools.[14]
Educational Providers and Libraries - ß 254(h)(1)(B). All
telecommunications carriers must provide services to schools at
discounted, affordable rates.[15]
Advanced Services - ß 254(h)(2)(A). The FCC must establish
competitively neutral rules to enhance access to advanced
telecommunications and information services for all school
classrooms.[16]
The Advanced Services paragraph introduces several terms that have
specific meaning within the context of the Act:
* Competitive neutrality requires that the FCC adopt rules that will not
favor one company or one technology over another.
* Telecommunications services transmit - and only transmit - voice or
data. These services are categorized as either basic or advanced. An
example of a basic telecommunications service is the telephone line in
the average home; an advanced service, however, is a capable of carrying
large amounts of data at very high speeds. Both basic and advanced
telecommunications services are regulated by the FCC.
* Information services modify, manipulate, or store the data being
transmitted. Examples of information services are Internet access and
voice mail. Information services generally require some form of
computing power either at the telephone company central office or at the
customer's premises to manipulate the data. Information services are
unregulated; anyone may produce and sell them.
* The specific mention of classrooms is important to the discussion of
whether to provide universal service support for internal connections as
it connotes providing services to actual classrooms rather to simply the
schoolhouse door.
Two other sections of the 1996 Act, Advanced Telecommunications
Incentives [17] and the National Education Technology Funding
Corporation ("Corporation") [18] are also intended to promote the
deployment of advanced services to schools: [19]
* Advanced Telecommunications Incentives requires the FCC to initiate a
notice of inquiry within 30 months of enactment of the Act "concerning
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the availability of advanced telecommunications capability to all
Americans (including, in particular, elementary and secondary schools
and classroom.)" [20] If the FCC's inquiry reveals that these services
are not being deployed in a "reasonable and timely" fashion, it is
instructed to "take immediate action to accelerate deployment of such
capability" using its regulatory powers.[21]
* The Act also established the National Education Technology Funding
Corporation. The purpose of the Corporation is to stimulate private
investment in education technology infrastructure and provide loans to
state education technology agencies. Additionally, the Corporation is
charged with establishing criteria to encourage states to invest in
interactive high capacity networks capable of providing audio, visual
and data communications for schools.[22]
THE FEDERAL COMMUNICATION COMMISSION'S NOTICE OF PROPOSED RULEMAKING ON
UNIVERSAL SERVICE
In March 1996, in accordance with the Act, the FCC issued a Notice of
Proposed Rulemaking and Order Establishing Joint Board (NPRM) on
universal service.[23] The NPRM requested comment on how to:
(1) Define the goals and principles of universal service and the
appropriate support mechanisms for residential users (core services)
(2) Support universal service in high-cost areas
(3) Define the goals and principles of universal service for public
institutional telecommunications users (schools, libraries, and
healthcare providers serving rural populations) and how to fund those
services
(4) Enhance access to advanced services for public institutional
telecommunications users
(5) Successfully transition from implicit to explicit [24] funding
mechanisms
(6) Administer the universal service fund.
The NPRM also established the Federal-State Joint Board as directed by
the 1996 Act. The Board members are FCC Chair Reed Hundt (Chair); FCC
Commissioner Rachelle Chong; FCC Commissioner Susan Ness; Commissioner
Julia Johnson of the Florida Public Service Commission; Commissioner
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Kenneth McClure of the Missouri Public Service Commission; Washington
Utilities and Transportation Commission Chair Sharon Nelson;
Commissioner Laska Schoenfelder of the South Dakota Public Utilities
Commission; and State of Missouri Public Counsel Martha Hogerty. The
Joint Board was charged with making recommendations to the FCC as to how
to interpret the Act's universal service provisions.
Comments to the NPRM were due to the Joint Board in April 1996, and
reply comments were due one month later. Then, in July 1996, the FCC
issued a notice requesting further comment on seventy-two specific
questions; responses to that notice were due in August. Twenty of the
seventy-two questions were directly related to access for public
institutional users, and of those twenty questions, three were
particularly relevant to this discussion:
(1) the extent to which the Joint Board should consider and rely upon
Advanced Telecommunications Incentives and National Education Technology
Funding Corporation to provide advanced services to [public
institutional users];[25]
(2) whether discounts should be available for a specified set of
telecommunications services or for all services;[26] and
(3) whether Telecommunications Services for Certain Providers should be
interpreted to include discounts for internal connections, such as
inside wire or wireless connections, to classrooms and what the
estimated cost of internal connections would be.[27]
THE JOINT BOARD'S RECOMMENDED DECISION ON UNIVERSAL SERVICE SUPPORT FOR
SCHOOLS
On November 8, 1996, the Joint Board released its 489-page Recommended
Decision.28 The most significant issues addressed relating to universal
service for schools were
(1) the services to be made eligible for support, including Internet
access;
(2) whether to include discounts on internal connections; and
(3) the funding methodology to be used to collect funds.
The FCC has until May 1997 to formally adopt the document, either "as
is" or with modifications. FCC and Joint Board Chair Reed Hundt has
indicated that the recommendations will be adopted with few, if any,
changes.
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Services Eligible for Support
In a separate section of the Recommended Decision, the Joint Board
proposed that the definition of core services include: voice-grade
access to the public switched network, with the ability to place and
receive calls; touch tone or its functional equivalent; single-party
service; access to emergency services; access to operator services;
access to interexchange services; and access to directory assistance.
[29] Its next step was to define the services to be made available to
schools at a discount. In accordance with the Act, the Joint Board could
have chosen to recommend that schools receive discounts on
(1) only core telecommunications services;
(2) core services plus some complement of additional services; or
(3) all telecommunications services (including wireless).
The Joint Board recommended the third option, that discounts be provided
on all telecommunications services in accordance with both Educational
Providers and Libraries [30] and Advanced Services:[31]
"Advanced Services provides a broader framework [than Educational
Providers and Libraries] for facilitating deployment of services to
schools because the competitively neutral rules contemplated under that
section are applicable to all service providers. The discounts mandated
under Educational Providers and Libraries, in contrast, are limited to
the provision of services by telecommunications carriers. The
discounting of telecommunications services under Advanced Services will
enable schools to have access to the broadest array of services
possible."[32]
The Joint Board stated that this guideline would provide schools the
maximum flexibility to purchase whatever package of telecommunications
services they believe would meet their telecommunications service needs
most effectively and efficiently. The Board said that, "Empowering
schools to choose the services best suited for their needs is critical
to achievement of the important universal services goal of pervasive
technology deployment and use in all schools, regardless of wealth and
location."[33]
The Joint Board rejected the proposal that support be provided only for
core services after "careful reading of the statute and its legislative
history."[34] It concluded that Congress clearly desired to permit
schools to have access to and use of services beyond those designated as
core services.[35] The Joint Board cited Special Services [36] which
states that in addition to the services included in the general
definition of universal service (core services), the FCC may designate
additional services for schools.[37] The Joint Board further explained
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this recommendation by saying that Congress had intended for the FCC and
the Joint Board to take into account the special needs of K-12
schools.[38] The Joint Board rejected parties' recommendations to
include the core services plus some complement of additional services
for schools, in part because none of the parties recommended the same
set of services. Since the commenters themselves could not determine
what the appropriate package should be, the Joint Board decided to allow
schools to choose for themselves. Additionally, in a rapidly changing
technology environment, the Joint Board stated that it did not want to
put itself and the FCC in the position of having to conduct regular
rulemaking proceedings to update the list of approved services.
The Joint Board also rejected the proposal that the use of wireless
technologies should be discouraged. It stated that "all technologies
have their advantages and disadvantages," and concluded that individual
schools are in the best position to assess such costs and benefits with
respect to their "individual needs and circumstances."[39]
Internet Access.
The Joint Board recommended that the Commission provide schools with
discounts for Internet access, pursuant to Advanced Services.[40] It
supported this recommendation by saying that it is not possible to
separate the network transmission component of Internet access from the
information service component.[41] The Joint Board believes that this
access will provide schools with the necessary online access to the
World Wide Web.[42] The Joint Board rejected arguments that Internet
access be excluded because it is not a telecommunications service.
Inside Connections
The Joint Board recommended that schools receive discounts on charges
for inside connections.[43] Such discounts, it stated, are permissible
under the statutory provisions of Telecommunications Services for
Certain Providers[44] and that the legislative history indicated the
Congressional intent to allow schools to obtain internal connections at
a discount. The Joint Board also found that Congress specifically
recognized inside connections as critical for achieving the purpose of
Telecommunications Services for Certain Providers,[45] and thus
considered that schools receive universal service support for internal
connections.[46]
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Installation and Maintenance of Internal Connections is a Service.
The Joint Board rejected arguments that inside connections are a
"physical facilit[y]" rather than a telecommunications "service," and
are therefore not eligible for universal service support.[47] The Joint
Board held instead that "the installation and maintenance of such
facilities are services" and that "the cost of the actual facilities may
be relatively small compared to the cost of labor involved in providing
internal connections."[48]
Another argument used by the Joint Board to support universal service
funding for internal connections related to the use of wireless internal
connections, such as NII/SUPERNet.[49] For example, a student or
teacher using a wireless telecommunications network would not be able to
differentiate between connections between classrooms (intraschool) and
connections between schools (interschool). It would seem to follow,
then, according to the Joint Board:
"that those wireless services would still represent services if school
personnel also used them for communications between classrooms within a
school rather than between schools and outside parties. There is
nothing on the record or in the statute that would suggest any reason
that such services are not eligible for universal service support. Yet
if wireless intraschool connections are services eligible for a discount
and Congress sought to ensure technological neutrality rather than
favoring wireless services, it follows that schools purchasing wireline
intraschool connections should also be permitted to apply discounts to
those services."[50]
Internal Connections Enhance Access to Advanced Telecommunications and
Information Services.
The Joint Board recommended that discounts for internal connections be
provided under the authority of Advanced Services[51] and that "internal
connections" be defined broadly to include "such items as routers, hubs,
network file servers, and wireless LANs. . .."[52]
The Joint Board also cited a letter from 26 Senators, including the four
sponsors of the original language included in Telecommunications
Services for Certain Providers,[53] to support its recommendation: "For
schools, we believe that connecting the classrooms is necessary to truly
enhance education so connectivity should be defined to include internal
connections in ways that are technology neutral."[54]
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Discount Methodology
Before presenting its recommended discount methodology, the Joint Board
explained the two reasons why it believed the prediscount service price
to be a significant issue. The prediscount price is the total price
that carriers will receive for the services they sell to schools.
Schools will pay a discounted price, and the carrier will receive the
difference between that total price and the discount price from the
universal service fund. The prediscount price is, therefore, important
to service providers as it will determine the total amount of
compensation collected. The prediscount price will also affect the
total amount that schools will pay, as they will have to pay a
percentage of the prediscount price.[55]
Discount Structure/Economically Disadvantaged Schools and Schools
Located in High Cost Areas.
The Joint Board recommended adopting a matrix of percentage discounts
based on a school's level of economic disadvantage and whether it is
located in a high-cost area.[56] It agreed with commenters who stated
that "access to telecommunications and other covered services should not
increase existing disparities between economically disadvantaged
students and their more affluent peers."[57] Under the Joint Board's
proposal, the least disadvantaged schools would receive discounts of
between 20 and 25 percent on services depending on their location; the
most disadvantaged schools would receive discounts of 90 percent
regardless of their location.
The Joint Board made a preliminary recommendation that the national
school lunch program be used to determine a school's level of economic
disadvantage and that discounts should be figured at the school, rather
than district, level. It further recommended that schools or districts
that do not participate in the national school lunch program be required
only to certify the percentage of their students who would be eligible
for the program if they did participate.[58] Regarding schools in high-
cost areas, the Joint Board recommended instituting a "step" approach
that would consider a school's location in allocating funds, but stated
that the Commission should seek additional comments on this issue prior
to adopting any final rule.[59]
The Joint Board recommended providing support to schools based on a
percentage discount mechanism, declining to recommend a 100 percent
discount (free service) for any schools. It stated that the maximum 90
percent discount would be sufficient to enable even the most
disadvantaged schools to purchase services,[60] encouraging both
efficiency and accountability. First, requiring schools to pay a share
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of the total cost of service should lead them to avoid unnecessary and
wasteful expenditures because they would be unlikely to devote their
pre-existing budgeted funds to purchases that they could not use
effectively. Second, a percentage discount would encourage schools to
seek the best pre-discount price and to make informed knowledgeable
choices among their options, thereby building in effective fiscal
constraints on the discount fund.[61]
Fund Cap.
In addition, based on the fact that universal service for schools is a
new provision with no historical record of actual costs, the Joint Board
recommended instituting an annual cap of $2.25 billion per year on the
amount of funds available to schools be set. This amount is equal to
approximately 1.5 percent of the total annual revenues of the "big
three" long distance companies - AT&T, MCI, and Sprint.[62] It is less
than .5 percent of the projected $500 billion converged or integrated
telecommunications market.[63]
Under the Joint Board's plan, any funds not disbursed in a given year
could be carried forward and disbursed in subsequent years without
regard to the cap. Conversely, a mechanism would be established to
indicate when expenditures reached $2 billion, indicating funds were
running low. If this were to occur, the Joint Board recommended
instituting "rules of priority" that would give the highest priority for
receiving funds to the most economically disadvantaged schools that had
not yet received discounts from the universal service fund that
year.[64]
Funding Mechanisms for Schools
Funding Sources.
The Joint Board recommended that universal service funding for schools
be drawn from both the interstate as well as intrastate revenues of
providers of interstate telecommunications services.[65] Prior to the
Act, funding for universal service was assessed solely on interstate
revenues of long distance service providers. Additionally, in the
Recommended Decision, the Joint Board recommended including both
interstate and intrastate revenues only to fund universal service for
public institutional users. Other universal service programs will
continue to be supported through interstate revenues only.
The Joint Board based its decision, in part, on comments that argued
that including both funding sources would "eliminate the need for
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complex separations schemes that are not employed by some of the
contributing carriers."[66] The members rejected arguments that
assessing intrastate revenues is outside the jurisdiction of the FCC and
that assessing intrastate revenues would adversely affect state
universal service programs.[67]
The Joint Board declined to recommend that "information service
providers" or "enhanced service providers" be required to contribute at
this time. However, it did recommend that this issue be revisited "in
the near future to take into account changes in technology and the
regulatory environment."[68] For example, the FCC could determine, at a
later, date, that Internet service providers (ISPs) should contribute to
the fund.
Offset versus Reimbursement.
According the Joint Board, all service providers, including
telecommunications carriers should be permitted to choose either
reimbursement for services provided or an offset of the amount it is
required to contribute.[69] As non-telecommunications carriers, such as
ISPs, are not currently obligated to contribute to the universal service
support mechanism, they would not be entitled to an offset. Non-
telecommunications carriers providing eligible services to schools,
therefore, would be able to receive only reimbursement from universal
service support mechanisms.[70]
Sections 706 and 708
The Joint Board concluded that Congress intended the FCC to conduct a
separate rulemaking proceeding for Advanced Telecommunications
Incentives.[71] In that section, Congress directed the Commission to
initiate a notice of inquiry within 30 months after the enactment of
the 1996 Act, and it further directed the Commission to complete that
rulemaking proceeding within 180 days after its initiation. As these
statutory deadlines differ from the deadlines imposed on the universal
service rulemaking proceeding, the Joint Board declined to consider
Advanced Telecommunications Incentives[72] in the context of this
proceeding.[73]
With respect to National Education Technology Funding Corporation,[74]
the Joint Board noted that the Corporation provides additional
opportunities for schools to increase the deployment of technology
within their institutions.[75] The Joint Board stated that regardless
of its support of the Corporation's mission, which includes the
development of public-private ventures to accelerate the dissemination
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of technology, it would not rely on that section to provide advanced
services to schools within the context of the universal service
rulemaking proceeding. Instead, it recommended that National Education
Technology Funding Corporation be considered further after
implementation of the universal service provisions.[76]
Implementation
The Joint Board recommended that the Commission adopt rules that will
permit schools to begin using discounted services at the start of the
1997 - 1998 school year.[77]
JOINT BOARD MEMBERS' COMMENTS ON THE RECOMMENDED DECISION: POINTS OF
AGREEMENT/POINTS OF CONTENTION
From the beginning, the diverse backgrounds of the Joint Board members
presented the possibility of dissent on a number of issues. Only two
members of the Joint Board, Florida State Commissioner Johnson and
Washington State Commission Chair Nelson, indicated their full approval
of the Recommended Decision. They submitted a joint statement saying
that they "fully support the Recommended Decision of the Federal-State
Joint Board on universal service," but added that continued oversight
and periodic adjustment are necessary.[78]
Internet Access
The Joint Board members were in agreement on the issue of Internet
access. Commenters opposing its inclusion based their claim on the fact
that Internet access is an information service rather than a
telecommunications service. They believe that since only
telecommunications services are now available under universal service,
only those services should be required under the new definition of
universal service for schools.
Internal Connections
Unlike the recommendation on Internet access, in which there was no
dissent among the Joint Board members, some minor dissent was found on
the subject of internal connections. Additionally, although this issue
was strongly opposed by many commenters, two of the eight members
expressed "concerns" or "reservations" about possible economic,
competitive, or legal problems associated with funding inside
connections. One member wrote specifically in support of the decision.
Presumably, the remaining members agreed with the decision as well.
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FCC Commissioner Chong stated that she supported the significant
discounts recommended by the Joint Board on telecommunications services
and Internet access, but expressed reservations about the Joint Board's
recommendation to fund internal connections. While she believes that
funding such connections is a "worthy goal," she also believes that this
portion of the program is not mandated by the Act and will increase
consumers' bills. Her concern was that "we should be cautious about
expanding the scope of the covered 'services' until we are sure we have
met our mandatory statutory obligations for all groups designated in the
Act and have sufficient funds to do so."[79]
Additionally, South Dakota State Commissioner Schoenfelder also
expressed concerns that providing inside connections is not "consistent
with a strict reading of the Act under Advanced Services."[80] She
stated that the Act only calls for supporting "services," not "plant and
equipment."[81]
FCC Commissioner Ness wrote a statement strongly supporting the
inclusion of inside connections the Recommended Decision, saying, "I am
delighted that the Joint Board has recommended that we address
[disparities in access] through aggressive discounts that enable poorer
schools and those in rural areas to obtain the services they need." She
stated her belief that the Joint Board was
"on firm legal and policy ground in recommending universal service
support for internal connections, whether or not they are
"telecommunications services." A contrary construction, which would
permit support of wireless connections but not wired ones, would be
completely at odds with the principle of competitive neutrality.
Technology choices should be made by schools and libraries, not by
regulators."[82]
Use of Interstate and Intrastate Revenues
The issue of using intrastate as well as the tradition interstate
revenues as a funding base for universal service was also a point of
contention with the Joint Board members. Four of the eight supported
the recommendation to base contributions to support schools on both
interstate and intrastate revenues, while two specifically opposed the
recommendation. The opposing members' concerns were based on both
competitive neutrality and legal concerns. Although Ness did not
specifically state her support for assessing both interstate and
intrastate revenues for support to schools, her statement concerning
support for high-cost areas indicates that she also supports such an
assessment in the case of schools:
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"We have made good progress in addressing the challenge of high-cost
areas, but much remains to be done. . . Regrettably, the Joint Board has
failed to address the question whether the funding for federal programs
for high-cost support. . . will be based on both the intrastate and
interstate revenues of carriers that provide interstate
telecommunications services, or only on their interstate revenues. . .
In my view, the federal program must be based on both intra[state] and
interstate revenues and provide the full measure of support needed to
meet the benchmark."[83]
Chong also supported the Joint Board's recommendation to base
contributions to the universal service fund as it relates to schools on
both interstate and intrastate telecommunications revenue. She stated
that "if Congress had intended that the system be funded entirely by
contributions based solely on interstate revenue of interstate carriers,
I believe that it would have been more specific." Not only did she find
that ß 254(f), State Authority, supports the inclusion of intrastate
revenues, but that, in the future, "there will be a blurring of lines
between interstate and intrastate revenues."[84]
Johnson and Nelson concurred with the Recommended Decision to fund the
school discount program through both interstate and intrastate revenues.
They based their support on the premise that "the Congress and the
Administration agreed that this is a social policy that is in the
interest of the Nation, both economically and socially" and that "states
have uniformly supported this broad social policy of providing access to
technology for the benefit of residents and schoolchildren."[85]
Schoenfelder and Missouri State Commissioner McClure dissented on this
issue, citing three specific concerns. First, they believe that the FCC
only has authority to base contributions on interstate
telecommunications revenues - assessing intrastate telecommunications
revenues is not within the FCC's jurisdiction. Second, they stated that
Congress intended the 1996 Act to preserve state authority over
universal service matters within the state and assessing intrastate
funds at the federal level could have a negative impact on state
universal service programs. Finally, they interpret the Act as allowing
the FCC to assess contributions only from interstate telecommunications
service providers. They believe that to recover intrastate revenues
from these carriers is discriminatory because the same services are not
assessed if they are provided by service provider providing intrastate
services.[86]
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Overall Size of Fund
The overall size of the fund was also cited as an area of concern by two
Joint Board members. Chong and Schoenfelder expressed concerns about
the overall size of the universal service fund, citing the inclusion of
subsidies for inside connections as a major factor in that concern. For
example, Chong stated in her statement that the estimated $2.25 billion
to assist schools "may be excessive and harmful to end users. . . By
supporting services at this level, average rates for all consumers may
increase and it may harm competition which is the principal objective of
the law."[87] Conversely, Johnson and Nelson believed that the $2.25
billion funding cap imposed will be sufficient to minimize any harm to
consumers.[88]
ANALYSIS
The points of dissent and concern expressed by the Joint Board members
represent much of the overall dissent among the commenters, except on
the issue of Internet access. However, the fact that the FCC, in its
request for comments to the Recommended Decision, only requested input
on how to identify high-cost areas and low-income schools indicates that
the FCC has decided to accept the recommendations of the Joint Board on
the other issues.
Internet Access
The Joint Board's reasoning for including Internet access is sound.
Information services are specifically named in ß 254 and Congress
expressed its support for including Internet access in its Joint
Explanatory statement. Although including an information service under
universal service is a new direction for the fund, it is in no way
outside of the plain language of the law. However, the fact that non-
telecommunications service providers will be allowed to collect out of
the fund while not paying into it is a new feature of the fund and may
be contested. The recommendation is certainly not popular with the
majority of industry members.
Inside Connections
Inside connections are not mentioned in ß 254 of the Act and the
argument used to support their inclusion in the fund is more tenuous
than that used to justify the inclusion of Internet access. At first
glance, it does not appear that inside wire can legally be covered.
However, the fact that wireless inside connections will be eligible for
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support introduces a new argument in support of providing discounts on
inside connections. The Joint Board makes a strong point on this issue.
Again, telecommunications service providers will counter that those
installing inside wire - a nonregulated service - should not receive
compensation out of a fund that they do not pay into. The Joint Board,
however, seems to have made clear its opinion that whether an entity
pays into the fund or not, it will be eligible to collect out of it.
Overall Size of the Fund
Concerns about designating too many and too broad a variety of services
as part of universal service for schools leads into the concern that the
fund itself will become too large to maintain public support.
Commenters arguing that only basic service should be provided based
their assertions in part on the idea that the universal service fund is
part of a public trust that must have public support. If the fund were
to grow too large, and customers began to believe they were paying too
much for services, they would revolt against the entire idea of the
fund. The Joint Board, again, has made its beliefs clear on this
matter. By setting what it believes to be a reasonable a cap on the
fund, the Joint Board believes it has minimized such a possibility.
Use of Interstate and Intrastate Revenues
The decision to assess intrastate as well as interstate revenues from
interstate telecommunications service providers is the most complex of
the issues related to schools that was addressed by the Joint Board.
Unfortunately, commenters provided very little input to this issue and
the Joint Board did not write on it extensively in its recommendation.
The most important comments on this issue were written by the members in
their press statements that accompanied the release of the Recommended
Decision.
A number of valid arguments can be made for either including or
excluding intrastate revenues. The majority of members within the Joint
Board argued to include those revenues. In addition to the reasons
stated by the Joint Board itself, another reason for including
interstate revenues is because, at least in the opinion of one well-
known telecommunications policy expert, Eli Noam of Columbia University:
"The traditional notion of jurisdictional separation was based on a
linear, spatial concept of networks. Networks were configured to
+ Page 53 +
minimize transmission distance. But as transmission costs decline,
telecommunications becomes distance-insensitive, and definitions of
interstate, intrastate and national services become increasingly
irrelevant."[89]
If, as Noam says, differentiating between interstate and intrastate
revenues will become more difficult in the future, it certainly makes
sense to assess both types of revenues. Additionally, assessing both
interstate and intrastate revenues will increase the base from which
universal service will be funded.
Arguments against assessing intrastate revenues are also compelling,
however. One concern of industry as well as state commenters was that
"including state revenues would adversely affect state support programs
by assessing contributions on intrastate revenues twice, once for
federal support and once for state support."[90] Additionally, since
the costs of such an assessment would most likely be passed onto
consumers, it would be anticompetitive to require one provider of a
service to contribute while exempting another because of its status as
an interstate provider. This decision could drive up prices for those
companies required to contribute on their intrastate revenues and give
intrastate-only companies a price advantage. To balance the decision,
those carriers required to contribute to the fund based on their
interstate and intrastate revenues should perhaps be exempted from
paying at the state level based on their intrastate revenues.
CONCLUSION
The Joint Board's recommendations, especially the inclusion of the
controversial Internet access and inside connection services, indicate
that it is very sympathetic to the needs of schools. Commenters
representing schools and the public interest sector are generally
pleased with the recommendations. Although many in industry will no
doubt voice their displeasure with these recommendations in its comments
on the Recommended Decision, the provision will most likely be adopted
"as is" by the FCC.
The future of the decision to assess intrastate revenues from interstate
telecommunications providers is less certain, although the support of
this provision by Commissioner Chong, generally known for a more pro-
business stance than the other commissioners, may indicate that industry
will have to either live with it or challenge it in court. Discussions
with telecommunications policy experts indicate that no challenge will
occur on this issue, although such a challenge would not come as a
complete surprise.
+ Page 54 +
The Joint Board's recommendations are a liberal yet accurate
interpretation of the Act. If implemented properly, the recommendations
are sure to increase the level of Internet access and use in the
classroom. And, that, after all, was part of the legislative intent of
ß 254 of the Act.
FOOTNOTES
[1] 1996 Act, Pub. L. No. 104-104, 110 Stat. 56. The 1996 Act amends
the Communications Act of 1934, 47 U.S.C. ßß 151 et. seq. All citations
to the 1996 Act will be to the relevant sections of the United States
Code unless otherwise noted. The 1996 Act is available online at
; the 1934 Act as
amended by the 1996 Act is available online at
.
[2] 47 U.S.C. ß 254.
[3] A high-cost area is one in which the cost of providing service is
at least 115% of the national average. 47 C.F.R. ß 36. See also
Amendment of Part 69 of the Commission's Rules Relating to the
Assessment of Charges for the Universal Service Fund and Lifeline
Assistance, Memorandum Opinion and Order, 4 FCC Rcd 6134 (1989).
[4] 47 C.F.R. ßß 36.701-36.741, 69.104(j)-(l), 69.116, 69.117,
69.203(f)-(g). See also Amendment of Part 69 of the Commission's Rules
Relating to the Assessment of Charges for the Universal Service Fund and
Lifeline Assistance, Memorandum Opinion and Order, 4 FCC Rcd 6134
(1989).
[5] Federal Communications Commission, Notice of Proposed Rulemaking
and Order Establishing Joint Board, 96-93, CC Docket No. 96-45, released
March 8, 1996,
.
[6] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, 96-93, CC Docket No. 96-
45, adopted November 7, 1996, released November 8, 1996,
.
[7] Federal Communications Commission, Common Carrier Bureau Seeks
Comment On Universal Service Recommended Decision, 96-93, CC Docket No.
96-45, released November 18, 1996,
+ Page 55 +
[8] 47 U.S.C. ß 254(c)(1)(A)-(D).
[9] 47 U.S.C. ß 254(h)(5)(C).
[10] 47 U.S.C. ß 254(h). The portions of the 1996 Act, Notice of
Proposed Rulemaking, and Recommended Decision that apply to schools also
apply to libraries; however, only schools are addressed in this paper.
Health care providers are examined separately in the 1996 Act, Notice of
Proposed Rulemaking, and Recommended Decision, and are also not
addressed in this paper.
[11] 47 U.S.C. ß 254(c)(3).
[12] 47 U.S.C. ß 254.
[13] " . . .schools and classrooms, health care providers, and
libraries should have access to advanced telecommunications services as
described in subsection (h)[(1)(B)]." 47 U.S.C. ß 254(b)(6).
[14] "In addition to the services included in the definition of
universal service. . . the Commission may designate additional services
for such support mechanisms for schools, libraries, and health care
providers for the purposes of [ß254(h)(1)(B)]." 47 U.S.C. ß
254(h)(1)(B).
[15] "All telecommunications carriers serving a geographic area shall.
. . provide. . . services to [schools] at [discounted] rates. The
discount shall be an amount that. . . is appropriate and necessary to
ensure affordable access to and use of such services by [schools]." 47
U.S.C. ß 254(h)(1)(B).
[16] "The Commission shall establish competitively neutral rules to
enhance, to the extent technically feasible and economically reasonable,
access to advanced telecommunications and information services for all
public and nonprofit elementary and secondary school classrooms. . ."
47 U.S.C. ß 254(h)(2)(A).
[17] 1996 Act, ß 706.
[18] 1996 Act, ß 708.
[19] Neither ß 706 nor 708 amended the Communications Act of 1934; each
stands alone and initiates a new program. A third section of the 1996
Act, ß 707 (47 U.S.C. ß 714), establishes the Telecommunications
Development Fund. It is not addressed in the Notice of Proposed
Rulemaking on Universal Service and is therefore not described in
+ Page 56 +
greater detail here. See Federal Communications Commission,
Telecommunications Development Fund Fact Sheet, for additional
information, .
[20] 1996 Act, ß 706.
[21] 1996 Act, ß 706(b). According to the information on the FCC's
education-related web page, LearnNet, "the FCC is in the process if
deciding how best to implement Section 706." See Federal Communications
Commission, LearnNet, .
[22] 1996 Act, ß 708. At this time, no action has been taken to
establish or administer the Corporation; however, it is mentioned in the
FCC's Request for Further Comment in its universal service proceeding,
discussed below.
[23] Federal Communications Commission, Notice of Proposed Rulemaking
and Order Establishing Joint Board, CC Docket No. 96-45, March 8, 1996.
[24] Implicit subsidies are pricing practices that appear to create
subsidies due to mismatched between costs and cost recovery. Explicit
subsidies are targeted to specific groups of subscribers or types of
local exchange carriers. There are currently six such mechanisms that
promote nationwide universal service. Two provide assistance directly to
the subscriber; four provide assistance to the local exchange carrier.
For an excellent description and discussion of these mechanisms, see
Federal Communications Commission, Common Carrier Bureau, Preparation
for Addressing Universal Service Issues: A Review of Current Interstate
Support Mechanisms, February 1996,
.
[25] Federal Communications Commission, Notice Requesting Further
Comment, 96-93, CC Docket No. 96-45, July 3, 1996,
,
question 9.
[26] Ibid., question 6.
[27] Ibid., question 7.
[28] The Recommended decision addresses eleven issues: (1) universal
service principles; (2) the definition of universal service (which core
services to support); (3) affordability of services; (4) carriers
eligible for universal service support; (5) high-cost support; (6)
+ Page 57 +
support for low-income consumers; (7) issues unique to insular areas;
(8) support for schools and libraries; (9) support for healthcare
providers; (10) Subscriber Line Charge (SLC) and Carrier Common Line
Charge (CCLC); and (11) universal service fund administration. Federal
Communications Commission, Recommended Decision of the Federal-State
Joint Board on Universal Service, par. 4.
[29] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 4.
[30] 47 U.S.C. ß 254(h)(1)(B).
[31] 47 U.S.C. ß 254(h)(2)(A).
[32] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 460.
[33] Ibid., par. 458
[34] Ibid., par. 459.
[35] 47 U.S.C. ß 254(c)(1).
[36] 47 U.S.C. ß 254(c)(3).
[37] Ibid.
[38] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 459, citing Joint
Explanatory Statement, S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess.,
1996, 132-33.
[39] Ibid., par. 461.
[40] 47 U.S.C. ß 254(h)(2)(A).
[41] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 462
[42] Ibid., par. 463
[43] Inside connections are that portion of the total
telecommunications connection that exists between the schoolhouse door
and the customer's equipment, such as a telephone or a computer. It may
consist of a wire or wireless connection as defined by the Joint Board.
+ Page 58 +
[44] 47 U.S.C. ß 254(h).
[45] 47 U.S.C. ß 254.
[46] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 473.
[47] Ibid., par. 474.
[48] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 474, citing Union
City Board of Education further comments, 6.
[49] The FCC has proposed making available 350 megahertz of spectrum at
5.15 - 5.35 GHz and 5.725 - 5.875 GHz for use by a new category of
unlicensed equipment called NII/SUPERNet devices. NII/SUPERNet devices
would provide short-range, high-speed wireless digital information
transfer and could support the creation of new wireless local area
networks (LANs) as well as facilitate access to the National Information
Infrastructure without the expense of wiring. These devices may further
the universal service goals of the Telecommunications Act by offering
schools, libraries, health care providers, and other users inexpensive
networking alternatives which may access advanced telecommunications
services. To further promote technical and operational flexibility, the
Commission has proposed to regulate NII/SUPERNet devices under Part 15
of the FCC rules. Unlicensed Part 15 status would facilitate spectrum
reuse and provide protection to incumbent and proposed primary
operations. Federal Communications Commission, Office of Engineering
and Technology, Unlicensed NII/SUPERNet Operations in the 5GHz Frequency
Range, .
[50] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 482.
[51] Ibid., par. 476.
[52] Ibid.
[53] 47 U.S.C. ß 254(h).
[54] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 486, citing Letter
from 26 Senators to Members of the Joint Board, Sept. 26, 1996, 1.
[55] Ibid., par. 535.
+ Page 59 +
[56] Ibid., par. 561.
[57] Ibid., par. 562, citing Public Advocates comments, 18-19; American
Federation of Teachers, further comments, 3-4; and National Coalition
for the Homeless, further comments, 8.
[58] Ibid., pars. 564 - 570.
[59] Ibid., pars. 557 - 560.
[60] Ibid., par. 551.
[61] Ibid., par. 549.
[62] These three companies control approximately 90 percent of the long
distance telephone market. Catherine Arnst, "The Giants Aren't
Sleeping," Business Week, April 8, 1996, 70.
[63] Ibid.
[64] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, pars. 552 - 556.
[65] Ibid., par. 817. The Joint Board recommended that an "interstate
telecommunications" should be defined to include the interstate portion
of the following: cellular telephone and paging, mobile radio, operator
services, personal communications services, access (including subscriber
line charges), alternative access and special access, packet switched,
WATS [Wide Area Telephone Service], toll-free, 900, MTS [Foreign Message
Toll Telephone Service], private line, telex, telegraph, video,
satellite, international/foreign, intraLATA [local access transport
area], and resale services. See par. 785.
[66] Ibid., par. 816.
[67] Ibid., par. 815.
[68] The Commission's rules define "enhanced services" as "services
offered over common carrier transmission facilities used in interstate
communications which employ computer processing applications that act on
the format, content, code, protocol or similar aspects of the
subscriber's transmitted information; provide the subscriber additional,
different, or restructured information; or involve subscriber
interaction with stored information." See 47 C.F.R. ß 64.702. The
definition of enhanced services is substantially similar to the
definition of information services, and information services are not
+ Page 60 +
"telecommunications services." Federal Communications Commission,
Recommended Decision of the Federal-State Joint Board on Universal
Service, par. 790.
[69] Offset decreases the amount to be paid into the fund by a service
provider by the amount equal to what it would be eligible to collect out
the fund. Offset is only applicable to providers who would be required
to (1) pay into the fund and (2) pay more in than they would collect.
Reimbursement would be available to any service provider regardless of
the amount paid into the fund.
[70] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 613.
[71] 1996 Act, ß 706.
[72] Ibid.
[73] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, pars. 618 - 619.
[74] 1996 Act, ß 708.
[75] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, pars. 618, 620.
[76] Ibid., pars. 618 - 619.
[77] Ibid., par. 630.
[78] Federal Communications Commission, Separate Statement of
Commissioner Julia Johnson and Chairman Sharon Nelson, 96-93, CC Docket
No. 96-45, November 7, 1996,
[79] Federal Communications Commission, Separate Statement of FCC
Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part, 96-
93, CC Docket No. 96-45, November 7, 1996,
+ Page 61 +
[81] Federal Communications Commission, Separate Statement of
Commissioner Laska Schoenfelder, Dissenting in Part, 96-93, CC Docket
No. 96-45, November 7, 1996,
[82] Federal Communications Commission, Separate Statement of
Commissioner Susan Ness, 96-93, CC Docket No. 96-45, November 7, 1996,
[83] Federal Communications Commission, Separate Statement of
Commissioner Susan Ness.
[84] Federal Communications Commission, Separate Statement of FCC
Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part.
[85] Federal Communications Commission, Separate Statement of
Commissioner Julia Johnson and Chairman Sharon Nelson.
[86] Federal Communications Commission, Separate Statement of
Commissioner Laska Schoenfelder, Dissenting in Part and Separate
Statement of Commissioner Kenneth McClure, Concurring in Part and
Dissenting in Part, 96-93, CC Docket No. 96-45, November 7, 1996,
.
[87] Federal Communications Commission, Separate Statement of FCC
Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part.
[88] Federal Communications Commission, Separate Statement of
Commissioner Julia Johnson and Chairman Sharon Nelson.
[89] Eli Noam, "Principles For The Communications Act Of 2034: The
Superstructure of Infrastructure," n.d.,
. Emphasis added.
[90] Federal Communications Commission, Recommended Decision of the
Federal State Joint Board on Universal Service, par. 815.
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+ Page 62 +
BIOGRAPHICAL NOTES:
Patricia Figliola Lewis
University of Florida
PhD Student, Telecom Policy & Law
http://grove.ufl.edu:80/~pflewis/
pflewis@nersp.nerdc.ufl.edu
Patricia Figliola Lewis is a second-year doctoral student in media
law and policy at the University of Florida's College of Journalism and
Communications. Previously, Ms. Lewis was employed by Booz-Allen & Hamilton
in McLean, VA, where she managed contract support to a Presidential advisory
committee on national security and emergency preparedness telecommunications
policy issues. Ms. Lewis earned her B.S. in computer science from Villanova
University and her M.S. in telecommunications management from the University
of Maryland. Her research interests include universal service, K-12
technology and media education, and telecommuting.
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